SAN FRANCISCO -- Grandma was right: Idle hands are the devil's workshop.

Major averages were yawning along with the tumbling tumbleweeds for much of the session Tuesday, to the point where I was getting ready to break one of the taboos of financial journalism and declare the session "boring."

The action remained relatively tame throughout, but the sloth proved too much of a temptation for sellers. The

Nasdaq Composite Index

closed down 172.63, or 4.4%, while the

S&P 500

slid 22 points, or 1.5%; the

Dow

shed 80.66, or 0.8%.

"A lot of people made money on the bounce

and others have seen some losses dissipate," said Tony Dwyer, chief market strategist at

Kirlin Holdings

, referring to the Comp's near 20% rise from its intraday lows on April 24 to Monday's intraday high. "They're going to be looking to cut and run on any weakness. Those that bought near the lows aren't going to play Russian roulette with the

Fed

."

Early in the day, there was talk about how impressive it was to see stock proxies generally withstand the weakness in

AT&T

(T) - Get Report

. Ma Bell slumped 14.3%, becoming the latest widely owned, mega-market-cap name to suffer the slings and arrows of an earnings disappointment or forecast thereof. (After the close,

Novell

(NOVL)

put itself in the same predicament; its shares were down more than 25% in after-hours trading after it warned of a second-quarter shortfall.)

"I like the way the market is hanging in," Charles Payne, president and chief analyst at

Wall Street Strategies

, said at midday. "It's really showing a lot of resiliency, building a platform for a nice rally to the upside."

Payne was encouraged by the ability of major indices to hold above their 200-day moving averages, as well as the recent action in stocks such as

Globespan

(GSPN)

. Before sliding 15.3% Tuesday, the stock had risen 88% for the week ended Monday, suggesting "the individual investor still has confidence in the New Economy stocks," he said. "That's important from a psychological point of view."

But less-optimistic market watchers are still thawing out from the chilling cumulative effects of the

Consumer Price Index

report on

April 14 and last Thursday's

employment cost index

and

GDP

reports.

"Up until March, inflation was more fear than reality," Dwyer said. "Now you have reality," which makes Thursday's productivity report, Friday's employment data, and the April CPI on May 16 (the day of the

FOMC

meeting) much more crucial to the market's near-term prospects.

The concern is not that inflation runs rampant, but that an upturn in interest rates kills the opportunity for what Wall Street whimsically calls "multiple expansion." Translated into something approaching English, that means higher price-to-earnings ratios.

"You're seeing the contraction of the P/E multiple" in the S&P 500, Dwyer said. The index is trading around 23 times expected 2001 earnings vs. a year ago, when it was trading at 30 times forward-year earnings. Yet, "nobody is pounding the table," he said, noting Abby Cohen of

Goldman Sachs

has not "put that 5% back," referring to the reduction in equity weighting she recommended on March 28.

Cohen was not available for comment and Dwyer didn't dare speak for her. His point is that the corrective action after March 28 did not compel Cohen to reverse her call because of the concern about inflation's revival.

If interest rates are rising, "the value of earnings down the road should be reduced," agreed Michael Strauss, market strategist of

Commonfund Group

, a Wilton, Conn., investment strategy firm that manages about $25 billion, mainly for college and university endowments. "We've seen some of that unfold. We're getting a return toward growth at a reasonable price" investing vs. the momentum style in vogue for so long.

I know the concept that higher interest rates inhibit P/E expansion is self-evident to experienced investors. But it's a concept that may be lost on newbies.

Be it freshly wrapped or growing stale, it's what Wall Street players are currently grappling with. Why they didn't seem to care last week could be explained by something as simple -- and nefarious -- as the fact it was the end of the month. Regardless, they're back on the beat now.

Which brings me back to a point I made on

April 24 about the still-extended valuations of tech giants such as

Cisco

(CSCO) - Get Report

,

Oracle

(ORCL) - Get Report

,

Yahoo!

(YHOO)

and

Sun Microsystems

(SUNW) - Get Report

.

Sure, the Comp rallied in my face thereafter, up nearly 9% despite Tuesday's setback. But each of those four bellwethers has underperformed the index. More importantly, market players are starting to talk more earnestly about their valuations. That discussion will take on a heightened anxiety if the forthcoming economic data don't prove to be extremely comforting on the inflation front.

I'm often early. But never in doubt.

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

taskmaster@thestreet.com .